Sep 27, 2017 term paper 2

BILL’S LAWN CARE MODULE 5 MINI PRACTICE PROBLEM

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Bill’s Lawn Care Module 5 Mini Practice Problem

In June, Bill made several purchases to accommodate his growing business.

June 2  Bill purchased a storage location for lawn care equipment, paid $45,000 for a building on 1 acre.  The land is appraised at $8,000.  The building has an estimated life of 10 years with a $5,000 salvage value.  Bill paid $2,000 down and financed the remaining purchase price with a 5% 5 year note.

June 4  Bill purchased a trailer to haul lawn care equipment for $2,300; estimated life is 5 years with no salvage value.  Bill paid for the purchase in cash.

June 5  Bill purchased a gas powered trimmer for $1,200 and a commercial leaf-blower for $1,500.  Bill estimates they will each have a two year life and no salvage value.  Bill paid for both of these pieces of equipment on account.

These are in addition to the three assets Bill acquired in May:

Date   Item  Cost   Estimated Life   Salvage Value

May   2  Truck  $7,000  5 years   $500

5  Lawn Mower  $300  2 years   $0

5  Aerator  $500  2 years  $0

Depreciation was recorded in May for these assets using the straight-line method however Bill is considering other depreciation methods and has asked you to prepare a comparison of the straight-line method with the double declining balance (200% DDB) method before he decides.

Instructions:

1.  Using the chart of accounts provided below and the Excel template provided with this assignment, record the transactions for the new assets purchased in June, 2014. Start with Page 7 for the journal entries.  Explanations are optional.

2.  Prepare a monthly schedule of depreciation for each of the seven assets for 2014 using 1) straight-line and 2) 200% DDB.  (Assume assets purchased before the 15th of the month will be depreciated as if owned for the entire month).  Remember that you are calculating monthly depreciation, not annual and adjust your depreciation rate.  Carry your depreciation rate to four decimals and round the depreciation expense to two decimals.

3.  Bill has decided that equipment will be depreciated using straight-line and the building using 200% DDB.  Prepare the adjusting journal entries for depreciation for the month of June, 2014. Start with Page 8 for the adjusting journal entries.  Explanations are optional.

 

Bill’s Lawn Care

Chart of Accounts

Classification

Account Number

Account Name

ASSETS

101

Cash

110

Accounts Receivable

112

Allowance for Doubtful Accounts

115

Notes Receivable

116

Interest Receivable

120

Supplies

130

Prepaid Insurance

140

Inventory

150

Equipment

152

Land

153

Building

155

Accumulated Depreciation – Equipment

156

Accumulated Depreciation – Building

LIABILITIES

201

Accounts Payable

220

Notes Payable

225

Interest Payable

OWNER’S EQUITY

301

Owner’s Capital

305

Owner’s Drawings

310

Income Summary

REVENUES

401

Lawn Service Revenue

410

Sales Revenue

415

Sales Returns and Allowances

420

Interest Income

COST OF GOODS SOLD

501

Purchases

505

Purchase Returns and Allowances

EXPENSES

620

Supplies Expense

630

Fuel Expense

640

Repair and Maintenance Expense

650

Advertising Expense

660

Insurance Expense

670

Depreciation Expense

680

Interest Expense

690

Bad Debt Expense

695

Miscellaneous Expense



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